The union cabinet chaired by prime minister Narendra Modi has approved the setting up of the 15th Finance Commission.
The Finance Commission, a statutory body under Article 280 (1) of the Constitution, is set up every five years to decide on how the net proceeds of taxes would be shared between the Centre and States. Jaitley said it usually takes two years for the Finance Commission to finalise its recommendations. "Both the Centre and States' expenditure patterns need to be retained and the impact of the new distribution of taxes system on States and the Centre has to be considered by the Commission".
The cabinet of the previous United Progressive Alliance (UPA) government had cleared establishing the Finance Commission in October 2012 and appointed Reddy as its chairman in January 2013.
"India is a Union of States, the Union also has to survive", Mr. Jaitley said in jest, hinting that the Centre hoped the devolution of shareable taxes did not compromise on its own capacity to spend.
"The next step is to appoint the personnel of the Commission and finalising its terms of reference".
Setting up the Finance Commission is a Constitutional obligation. Upon endorsed by the government, the recommendations of the 15th FC will have to come into effect from April 1, 2020. The decision is to implement recommendations by the 7th Central Pay Commission in respect of civil servants. These two legislations deal with the salaries of Chief Justice of India (CJI) along with Judges of Supreme Court of India, and Chief Justices and all Judges of High Courtsa, respectively.